Fortune Magazine – Nicholas Varchaver and Katie Benner report: As Congress wrestles with another bailout bill to try to contain the
financial contagion, there’s a potential killer bug out there whose
next movement can’t be predicted: the Credit Default Swap.

In
just over a decade these privately traded derivatives contracts have
ballooned from nothing into a $54.6 trillion market. CDS are the
fastest-growing major type of financial derivatives. More important,
they’ve played a critical role in the unfolding financial crisis.
First, by ostensibly providing “insurance” on risky mortgage bonds,
they encouraged and enabled reckless behavior during the housing bubble.

“If
CDS had been taken out of play, companies would’ve said, ‘I can’t get
this [risk] off my books,’” says Michael Greenberger, a University of
Maryland law professor and former director of trading and markets at
the Commodity Futures Trading Commission. “If they couldn’t keep
passing the risk down the line, those guys would’ve been stopped in
their tracks. The ultimate assurance for issuing all this stuff was,
‘It’s insured.’”

Second, terror at the potential for a financial
Ebola virus radiating out from a failing institution and infecting
dozens or hundreds of other companies - all linked to one another by
CDS and other instruments - was a major reason that regulators stepped
in to bail out Bear Stearns and buy out AIG (AIG, Fortune 500), whose calamitous descent itself was triggered by losses on its CDS contracts (see “Hank’s Last Stand“).

And the fear of a CDS catastrophe still haunts the markets. For
starters, nobody knows how federal intervention might ripple through
this chain of contracts. And meanwhile, as we’ll see, two fundamental
aspects of the CDS market - that it is unregulated, and that almost
nothing is disclosed publicly - may be about to change. That adds even
more uncertainty to the equation

“The big problem is that here
are all these public companies - banks and corporations - and no one
really knows what exposure they’ve got from the CDS contracts,” says
Frank Partnoy, a law professor at the University of San Diego and
former Morgan Stanley derivatives salesman who has been writing about
the dangers of CDS and their ilk for a decade. “The really scary part
is that we don’t have a clue.” Chris Wolf, a co-manager of Cogo Wolf, a
hedge fund of funds, compares them to one of the great mysteries of
astrophysics: “This has become essentially the dark matter of the
financial universe.” …

ONE REASON THE MARKET TOOK OFF is that you don’t have to own
a bond to buy a CDS on it - anyone can place a bet on whether a bond
will fail. Indeed the majority of CDS now consists of bets on other
people’s debt. That’s why it’s possible for the market to be so big:
The $54.6 trillion in CDS contracts completely dwarfs total corporate
debt, which the Securities Industry and Financial Markets Association
puts at $6.2 trillion, and the $10 trillion it counts in all forms of
asset-backed debt.

“It’s sort of like I think you’re a bad driver
and you’re going to crash your car,” says Greenberger, formerly of the
CFTC. “So I go to an insurance company and get collision insurance on
your car because I think it’ll crash and I’ll collect on it.” That’s
precisely what the biggest winners in the subprime debacle did. Hedge
fund star John Paulson of Paulson & Co., for example, made $15
billion in 2007, largely by using CDS to bet that other investors’
subprime mortgage bonds would default.

So what started out as a
vehicle for hedging ended up giving investors a cheap, easy way to
wager on almost any event in the credit markets. In effect, credit
default swaps became the world’s largest casino. As Christopher Whalen,
a managing director of Institutional Risk Analytics, observes, “To be
generous, you could call it an unregulated, uncapitalized insurance
market. But really, you would call it a gaming contract.” …

There is at least one key difference between casino gambling and CDS
trading: Gambling has strict government regulation. The federal
government has long shied away from any oversight of CDS. The CFTC
floated the idea of taking an oversight role in the late ’90s, only to
find itself opposed by Federal Reserve chairman Alan Greenspan and
others. Then, in 2000, Congress, with the support of Greenspan and
Treasury Secretary Lawrence Summers, passed a bill prohibiting all
federal and most state regulation of CDS and other derivatives. In a
press release at the time, co-sponsor Senator Phil Gramm - most
recently in the news when he stepped down as John McCain’s campaign
co-chair this summer after calling people who talk about a recession
“whiners” - crowed that the new law “protects financial institutions
from over-regulation … and it guarantees that the United States will
maintain its global dominance of financial markets.” (The authors of
the legislation were so bent on warding off regulation that they had
the bill specify that it would “supersede and preempt the application
of any state or local law that prohibits gaming …”) Not everyone was
as sanguine as Gramm. In 2003 Warren Buffett famously called
derivatives “financial weapons of mass destruction.”

THERE’S ANOTHER BIG
difference between trading CDS and casino gambling. When you put $10 on
black 22, you’re pretty sure the casino will pay off if you win. The
CDS market offers no such assurance. One reason the market grew so
quickly was that hedge funds poured in, sensing easy money. And not
just big, well-established hedge funds but a lot of upstarts. So in
some cases, giant financial institutions were counting on collecting
money from institutions only slightly more solvent than your average
minimart. The danger, of course, is that if a hedge fund suddenly has
to pay off on a lot of CDS, it will simply go out of business. “People
have been insuring risks that they can’t insure,” says Peter Schiff,
the president of Euro Pacific Capital and author of Crash Proof,
which predicted doom for Fannie and Freddie, among other things. “Let’s
say you’re writing fire insurance policies, and every time you get the
[premium], you spend it. You just assume that no houses are going to
burn down. And all of a sudden there’s a huge fire and they all burn
down. What do you do? You just close up shop.” (09/30/08)
more…

Timothy Wilken, MD writes: Recall my earlier definitions of synergic wealth:

SYNERGIC WEALTH —def—>
Life itself and that which promotes human well being generally — that
which satisfies human needs of self and other — that which promotes
mutual survival and makes life meaningful for self and other. This then
includes all Property and all Synergic Trust.

SYNERGIC WEALTH is then 1) LIFE itself including the LIFE TRUST 2) HUMAN ACTION—Mental and Physical—Thinking, Action, and Behavior—Primary Property 3) HUMAN LEVERAGE—Mental
and Physical—Intellectual Property in the forms of Theories,
Discoveries, and Technology Designs—Primary Property, and Physical
Property such as Tools, Technology Artifacts, and Products—Secondary
Property, 4) the TIME-BINDING TRUST, and 5) the EARTH TRUST.

plunder is
not Synergic Wealth. As stolen Property or exploited Trust it has been
removed from the Synergic Wealth pool to serve the criminals’ needs.

If and when stolen Property is rescued by synergic justice,
then it is returned to its rightful owners, or if that is not possible
it is placed in the protective custody of the appropriate Trustees. If
and when exploited Trust is rescued by synergic justice, it is returned
to the Protective custody of the appropriate Trustees.

Korzybski’s Indexing: Now that we have carefully defined Wealth, we can utilize a derivative of Korzybski’s Indexing^TT to identify what form of wealth we are talking about.

Property^P is designated with superscript P.

Life Trust^LT is designated with a superscript LT.

Earth Trust^ET is designated with a superscript ET.

Time-binding Trust^TT is designated with a superscript TT.

And plunder_p is designated with a subscript p.

Some examples would be: my computer^P, the American eagle^LT,the Earth^ET, Einstein’s Theory of Relativity^TT, and the thief was arrested in possession of several cellular phones_p.

Synergic Trustees: Recall, I said earlier that all humans are synergic trustees.

We are Earth Trustees for the land and natural resources we
are granted use of for our personal needs. We must conserve and protect
those Earth resources that we are entrusted with. This is an obligation
to humanity as community and to the Earth Trust.

We are of course the Life Trustees of our own bodies. We
should take good care of ourselves. Take care with our health and
nutrition. As parents we are the Life Trustees for our children until
they are adults. We must not harm ourselves or our children. We must
live in ways to help ourselves and our children. This is an obligation
to humanity as community and to the Life Trust.

We are also the Time-binding Trustees of all the knowledge and
skills that we personally have mastered from our study of the past. We
must strive not to hurt others with this knowledge and skill. We should
try and help others to whatever extent we are capable.

In synergic culture, all humans are granted access to the
Time-binding Trust at birth. Every human may make full use of the
knowing contained in the Time-binding Trust as long as that use does
not hurt others.

Personal or educational use of the Time-binding Trust is
encouraged without limit or restriction. Knowledge cannot be consumed.
Using the Time-binding Trust does not in any way diminish it.

Every human who gains economically from their use of the
Time-binding Trust is required to acknowledge and give credit to the
innovators and creators of the knowledge they are using.

They are further encouraged to help others to the extent they
are capable — helping is a basic synergic value. Who they choose to
help and to what extent they help is entirely voluntary — entirely
their own personal choice. And, while synergic culture encourages its
members to help others, there is no coercive obligation to do so.

Furthermore, economic gain from use of the Time-binding Trust
creates no economic obligation to the Time-binding Trust or anyone
else. (09/30/08)
more…

If we don’t get our political-economic house in order very soon, America will soon be reduced the the level of “a banana republic with nukes.”

The following is the full text of a speech given by Iranian President Ahmadinejad to the United Nations General Assembly early Wednesday morning, September 24, 2008 as translated by the Presidency of the Islamic Republic of Iran News Service. The speech is reposted here to share his perspective with my readers. You can judge the merits of his words for yourselves. …

Mahmoud
Ahmadinejad speaks: Mr. President, Excellencies, I am grateful to the Almighty for granting me another opportunity to be present in this world Assembly.

In
the last three years, I have talked to you about great hopes in the
bright future of human society, and some solutions for achieving
sustainable peace and expanding love, compassion, and cooperation.

I
have also talked about unjust systems governing the world; pressures
exerted by some powers seeking to trample the rights of other nations,
oppression imposed on the majority of the global community, especially
on the people of Iraq, Palestine, Lebanon, Africa, Latin America, and
Asia; about challenges we are faced with, such as efforts to shatter
the sanctity of families, destroy cultures, humiliate lofty values,
neglect commitments, expand the shadow of threats, as well as about the
arms race and the unfairness and inability of the systems governing
world affairs in reforming the status quo.

With the occurrence
of various new developments, the debility of existing mechanisms has
been revealed even more. However, at the same time, an encouraging
trend, which has originated in the thoughts and beliefs of peoples, has
blossomed and become stronger. Posed against the despairs caused by the
new developments, this trend has ignited the ray of hope for a
brilliant, desirable and beautiful future in the hearts of men. …

Let’s look at the situation of the world today: Iraq
was attacked under the false pretext of uncovering weapons of mass
destruction and overthrowing a dictator. The dictator is toppled and
WMDs are not uncovered. A democratic government is established by the
votes of the people but, after 6 years, the occupiers are still there.
They insist on imposing colonial agreements on the people of Iraq by
keeping them under Chapter 7 of the UN Charter. Millions of people have
been killed or displaced, and the occupiers, without a sense of shame,
are still seeking to solidify their position in the political geography
of the region and to dominate oil resources.

They have no
respect for the people of Iraq and disregard any dignity, rights or
status for them. The UN is not capable enough to solve the problems and
to remove aggression, occupation and imposition.

In Palestine,
60 years of carnage and invasion is still ongoing at the hands of some
criminal and occupying Zionists. They have forged a regime through
collecting people from various parts of the world and bringing them to
other people’s land by displacing, detaining, and killing the true
owners of that land.

With advance notice, they invade,
assassinate, and maintain food and medicine blockades, while some
hegemonic and bullying powers support them. The Security Council cannot
do anything and sometimes, under pressure from a few bullying powers,
even paves the way for supporting these Zionist murderers. It is
natural that some UN resolutions that have addressed the plight of the
Palestinian people have been relegated to the archives unnoticed

In
Afghanistan, production of narcotics has multiplied since the presence
of NATO forces. Domestic conflicts continue. Terrorism is spreading.
And innocent people are bombarded on a daily basis in streets, markets,
schools and wedding ceremonies. The people of Afghanistan are the
victims of the willingness of NATO member states to dominate the
regions surrounding India, China, and South Asia. The Security Council
cannot do anything about it because some of these NATO members also
happen to be the major decision makers in the Security Council.

In
Africa, efforts are made to re-establish the relationships of the
colonial era. By starting civil wars in large countries including
Sudan, disintegration of those countries is planned in order to serve
the interests of some corrupt powers. In case there is a national
resistance, the leaders of the resistance are put under pressure by
legal mechanisms created by the very same powers.

In Latin
America, people find their security, national interests and cultures to
be seriously endangered by the menacing shadow of alien domineering
governments, and even by the embassies of some empires.

The
lives, properties and rights of the people of Georgia and Ossetia and
Abkhazia are victims of the tendencies and provocations of NATO and
certain western powers, and the underhanded actions of the Zionists.

The
never-ending arms race and the proliferation and stockpiling of nuclear
and other weapons of mass destruction and the threats to use them, and
the establishment of missile defense systems, have made the situation
unstable. …

All these are due to the manner in which the immoral and the
powerful view the world, humankind, freedom, obeisance to God, and
justice. The thoughts and deeds of those who think they are superior to
others and consider others as second-class and inferior; who intend to
remain out of the divine circle, to be the absolute slaves of their
materialistic and selfish desires, who intend to expand their
aggressive and domineering natures, constitute the roots of today’s
problems in human societies. They are the great hindrances to
the actualization of material and spiritual prosperity and to security,
peace and brotherhood among nations. I explicitly state that the
Iranian people and the overwhelming majority of peoples and governments
are against those deeds and perspectives of the world- domineering
powers. Establishment of justice requires people who have achieved
moderation and justice inside themselves, and have restrained their
domineering attitudes and actualized their attributes of self-sacrifice
and are at the service of humanity. …

Fortuitously, opportunities are accessible. With the grace of God
Almighty, the existing pillars of the oppressive system are crumbling.
Great developments in favor of humankind as well as its true and real
rights are on the way. A golden and brilliant future is awaiting
mankind. A global community filled with justice, friendship,
brotherhood and welfare is at hand, as I have elaborated.

A
community which will tread the path of beauty and love under the rule
of the righteous and perfect human being, the One promised by all
divine prophets and the One who is the true lover of humanity. A
community that will be devoid of any fear, despair and privation. Such
a community will soon be ours. The community promised by the great
divine Prophets Noah, Abraham, Moses, Jesus Christ and Mohammad (PBUH)
is about to materialize

Let us, hand in hand, expand the
thought of resistance against evil and the minority of those who are
ill-wishers. Let’s support goodness and the majority of people who are
good and the embodiment of absolute good that is the Imam of Time, The
Promised One who will come accompanied by Jesus Christ, and accordingly
design and implement the just and humanistic mechanisms for regulating
the constructive relationships between nations and governments.

Oh
great Almighty, deliver the savior of nations and put an end to the
sufferings of mankind and bring forth justice, beauty, and love.

Friends; Let’s have a proper share in the establishment of that illuminated and promised divine age. (09/30/08)
more…